The jinxed India-Asean FTA
24 April 2009
The jinxed India - Asean FTA
The India-Asean Free Trade Agreement (FTA) has suffered so many disasters that some observers fear a jinx. Be that as it may, is it advisable to encourage regional economic integration even as WTO attempts such
integration at the global level?.
CJ: S Shivakumar
THE INDIA-ASEAN (the Association of Southeast Asian Nations) summit scheduled to be held in Pattaya in Thailand in the second week of April 2009, was postponed following anti-government demonstrations there. Though the official version calls it ‘postponement’, the fact of the matter is that the whole exercise of holding the summit between the 10-member Asean on the one hand and China, Japan and India on the other, just tanked.
Interestingly, the Union Commerce Secretary, Gopal K Pillai who accompanied the minister concerned, Kamal Nath, to finalise the text of the India - Asean FTA (Free Trade Agreement), told the press before his departure for Thailand that the final negotiations would be kept ready, for the new government to ink the pact. But then the commerce ministry has been optimistic since 2007. In fact, during the Brunei discussions in August 2008, the signing of the FTA was scheduled for December 2008. The rest, as they say, is history.
The political uncertainty in Thailand ensured that the proposed FTA between India and Asean never took off. The signing of the FTA would have led to tariff commitments in respect of approximately 95 per cent, by value, of India’s USD 30 billion trade with the Asean members. It would also have helped India keep 489 items on the negative list (which means tariff concessions will not be exchanged in respect of these items).
Regional economic integration has been gathering steam because it is supposed to reduce and possibly eliminate tariff and nontariff barriers to the free flow of goods, services and factors of production between countries. But then, the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organisation (WTO) are also supposed to achieve the same. With 153 member states, the WTO at least has a worldwide perspective. Does it mean that regional trade agreements can reduce trader barriers more effectively than the WTO? It does, going by the proliferation of regional trade arrangements. As the WTO itself admits,
“Regional Trade Agreements (RTAs) have become in recent years a very prominent feature of the Multilateral Trading System (MTS).
The surge in RTAs has continued unabated since the early 1990s. Some 421 RTAs have been notified to the GATT/WTO up to December 2008. Of these, 324 RTAs were notified under article XXIV of the GATT 1947 or GATT 1994; 29 under the Enabling Clause; and 68 under Article V of the GATS. At the same date, 230 agreements were in force. If we take into account RTAs, which are in force but have not been notified, those signed but not yet in force, those currently being negotiated and those in the proposal stage, we arrive at a figure of close to 400 RTAs, which are scheduled to be implemented by 2010. Of these RTAs, Free Trade Agreements (FTAs) and partial scope agreements account for over 90 per cent while customs unions account for less than ’10 per cent’.
It is clear from the WTO’s admission that WTO members are required to notify the WTO of the regional trade agreements they have entered into. Not all regional trade agreements of the past 50 years are in force to this day. Most of the dormant agreements have been superseded by new agreements entered into by the same signatories. The European Union or EU is the best known regional trade agreement or RTA.
But such proliferation of RTAs may lead to a situation wherein regional trade blocs end up competing against each other. This in turn implies that free trade will be restricted to individual trade blocs and naturally each trade bloc will protect its market from out-of-the-bloc completion by resorting to a high-tariff regime. Right now the EU is in a position to keep out foreign producers by erecting high tariff barriers, which runs against the very spirit of free and unrestricted trade. The resultant fall in trade between individual blocs could more than offset the so-called gains supposed to accrue from bloc-specific free trade. This is not what the WTO set out to achieve!
